A control variate method based on polynomial approximation of Brownian path

TL;DR

This paper introduces a new control variate method that uses polynomial approximation of Brownian paths to improve Monte Carlo estimation efficiency for stochastic differential equations, combining fine and coarse discretizations.

Contribution

The paper proposes a novel control variate technique based on polynomial approximation of Brownian motion, enhancing Monte Carlo efficiency for SDE expectations.

Findings

Significant variance reduction demonstrated in numerical experiments.

Error decay characterized as a function of computational resources.

Method effectively couples fine and coarse discretizations for improved accuracy.

Abstract

We present a novel control variate technique for enhancing the efficiency of Monte Carlo (MC) estimation of expectations involving solutions to stochastic differential equations (SDEs). Our method integrates a primary fine-time-step discretization of the SDE with a control variate derived from a secondary coarse-time-step discretization driven by a piecewise parabolic approximation of Brownian motion. This approximation is conditioned on the same fine-scale Brownian increments, enabling strong coupling between the estimators. The expectation of the control variate is computed via an independent MC simulation using the coarse approximation. We characterize the minimized quadratic error decay as a function of the computational budget and the weak and strong orders of the primary and secondary discretization schemes. We demonstrate the method's effectiveness through numerical experiments on representative SDEs.